In recent years, venture capital has increasingly become a factor in the
financing of new firms. We examine how the value of mature firms determines
the incentives of entrepreneurs to start up new firms and of venture capitalists
to finance and advise them. We examine how capital gains taxes as well as
subsidies to start-up costs of new firms affect venture capital-backed
entrepreneurship. We also argue that dividend and capital gains taxes on
mature firms have important consequences for start-up firms as well.
JEL Classification: D82, G24, H24 and H25
Keywords: double moral hazard, entrepreneurship, taxes and venture capital